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Pastimes : Alan Greenspan MUST GO: -- Ignore unavailable to you. Want to Upgrade?

To: Master (Hijacked) who wrote (209)	12/15/2000 5:48:04 PM
From: Eashoa' M'sheekha	Read Replies (1) \| Respond to of 494

Friday December 15, 12:45 am Eastern Time Newspaper: Fed Unlikely to Cut Rates WASHINGTON (Reuters) - Faced with slowing economic growth and an uncertain short-term economic outlook, a number of Federal Reserve officials have concluded that the risk of serious weakness in the economy is as great as the risk that inflation will get worse, The Washington Post reported Friday. But none of the Fed officials suggested there was, as yet, any urgent need to cut rates, wrote the Post's John Berry, citing interviews with Fed officials in recent weeks. The officials, who meet Tuesday as the Federal Open Market Committee, the central bank's top policymaking group, are expected to adopt their view but make no change in their target for overnight interest rates, Berry wrote. At the past four FOMC sessions, the members said that inflation posed the greater risk. Shifting to a neutral stance would leave the FOMC positioned to respond to significant weakness in U.S. economic growth by lowering interest rates, something many investors and financial analysts expect to happen early next year. Some analysts expect growth to slow enough -- to around 2 percent or 2.5 percent -- that the Fed will reduce rates by up to a full percentage point over the course of 2001. Based on some financial futures contracts, many investors expect the rate cuts to begin at the following FOMC meeting on Jan. 30-31. Some Fed officials believed it was still possible for the slowdown in growth to turn out to be just a pause followed by a rebound to the much higher rates of growth of the past two years, according to the Post. In that case, a shift to a neutral stance next week would leave the Fed free to move back to expressing a greater concern about inflation without having whipsawed financial market expectations about central bank policy. TO EARLY TO PREDICT WHEN SLOWDOWN WILL STOP ``We've got a slowdown, and a lot of people are quite nervous,'' the Post quoted Fed governor Edward M. Kelley as saying. ``That's quite predictable ... But it's far too early to make a judgement on where the slowdown might stop. If we had a touch-and-go and went back up to high rates of growth, that would be dangerous.'' Kelley welcomed slower growth as needed to keep inflation low, saying, ``For myself, I hope that the slow, sluggish rise in inflation that we have seen can be topped out by an economy that just slows to trend or just below trend.'' By trend, he meant the rate of growth the economy can sustain indefinitely, a figure he put at about 3.5 percent, according to the Post article. ``We have to cap this incipient rise in inflation ... We have to cap it here and eventually turn it back somewhat,'' the Post quoted Kelley as saying. ``I would hope that we can slow down to trend and stay there for a while and accomplish that. But that might not be possible.'' The Post said several Fed officials stressed the high degree of economic uncertainty as the economy moves through a transition to a slower pace for economic growth. Under such circumstances, every piece of incoming economic data gains new importance as everyone searches for hints of what is coming next, and policymakers needed to move cautiously. The officials said they were following closely developments in financial markets that have made it both more difficult and more costly for business borrowers to obtain credit. Fed Chairman Alan Greenspan underscored the new risks associated with the growth slowdown in a speech last week. Beginning last year, the Fed sought to cool what threatened to become an overheated economy and head off an increase in the nation's underlying inflation rate. To that end, the FOMC raised its target for the federal funds rate -- the interest rate financial institutions charge one another on overnight loans -- six times, lifting it to 6.5 percent from 4.75 percent. Those increases affected the level of many other rates, including the prime lending rate at banks, which rose by the same 1.75 percentage points, to 9.5 percent. Whatever the short-term outlook for growth, most of the Fed officials said they see no immediate problem on the inflation front that would prevent a reduction in rates, should that become necessary, the Post said.